WHIRLPOOL CORPORATION 
This Management Discussion and Analysis should be read in connection with the Consolidated Financial Statements, Notes to the Consolidated Financial Statements and Selected Financial Data included in this Form 10-K. Certain references to particular information in the Notes to the Consolidated Financial Statements are made to assist readers. OVERVIEWWhirlpool had full-year GAAP net earnings available toWhirlpool of$1.2 billion (net earnings margin of 5.8%), or$18.45 per share, compared to GAAP net loss available toWhirlpool of$183 million (net earnings margin of (0.9)%), or$(2.72) per share in the same prior-year period. On a GAAP basis, net earnings were favorably impacted by the gain on the sale of our Embraco compressor business of approximately$511 million , partially offset by product warranty and liability expense of approximately$131 million and losses associated with strategic actions executed in EMEA of approximately$74 million . In the same prior-year period, non-recurring items negatively impacted net earnings available toWhirlpool by approximately$850 million . Solid cash provided by operating activities of$1.2 billion was driven by higher earnings and working capital improvement.Whirlpool delivered ongoing (non-GAAP) earnings per share of$16.00 and full-year ongoing EBIT margin of 6.9%, compared to 6.3% in the same prior-year period. These results were driven by positive price/mix and strong cost discipline, which were partially offset by cost inflation, increased brand investments and currency. In addition, we delivered strong free cash flow (non-GAAP) of$912 million , primarily driven by working capital improvement and lower capital expenditures. Lastly, we strengthened our balance sheet and made strong progress toward our long-term Gross Debt to EBITDA target of approximately 2.0. We are very pleased with the successful execution of our strong price-mix actions driven by new product introductions and cost-based price increases and targeted cost takeout. In addition, the strong actions to restore profitability in EMEA resulted in approximately$75 million of EBIT improvement compared to the prior-year. We are committed to generating margin expansion and strong cash flow and are confident that our actions will drive positive results in 2020 as outlined in our long-term value creation strategy. 24
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
RESULTS OF OPERATIONS
The following table summarizes the consolidated results of operations:
December 31,
Consolidated - In Millions (except per
share data) 2019 Better/(Worse) 2018 Better/(Worse) 2017
Units (in thousands) 67,405 (1.5)% 68,440 (4.6)% 71,704
Net sales $ 20,419 (2.9) $ 21,037 (1.0) $ 21,253
Gross margin 3,533 (0.1) 3,537 (1.8) 3,602
Selling, general and administrative 2,142 2.1 2,189 (3.6) 2,112
Restructuring costs 188 23.9 247 10.0 275
Impairment of goodwill and other
intangibles - nm 747 nm -
(Gain) loss on sale and disposal of
businesses (437 ) nm - nm -
Interest and sundry (income) expense (168 ) nm 108 (24.3) 87
Interest expense 187 2.6 192 (18.2) 162
Income tax expense 354 nm 138 74.7 550
Net earnings (loss) available to
Whirlpool 1,184 nm (183 ) nm 350
Diluted net earnings (loss) available to
Whirlpool per share $ 18.45 nm $ (2.72 ) nm $ 4.70
nm: not meaningful
Consolidated net sales for 2019 decreased 2.9% compared to 2018, primarily
driven by the divestiture of the Embraco compressor business, unfavorable
foreign currency and unit volume declines, partially offset by the favorable
impact of product price/mix. Organic net sales, or net sales excluding the
impact of foreign currency and Embraco, for 2019 increased 1.6% compared to
2018. Consolidated net sales for 2018 decreased 1.0% compared to 2017, primarily
driven by unit volume declines and unfavorable foreign currency, partially
offset by favorable impacts from product price/mix. Excluding the impact of
foreign currency, consolidated net sales for 2018 decreased 0.1% compared to
2017.
For additional information regarding non-GAAP financial measures including
organic net sales and net sales excluding the impact of foreign currency, see
the Non-GAAP Financial Measures section of this Management's Discussion and
Analysis.
The chart below summarizes the balance of net sales by operating segment for
2019, 2018 and 2017, respectively.
[[Image Removed: chart-fc603405f4725d028a6.jpg]]
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
The consolidated gross margin percentage for 2019 increased to 17.3% compared to
16.8% in 2018, primarily driven by the favorable impact of product price/mix,
cost reduction initiatives in the EMEA region and a gain on sale-leaseback,
partially offset by lower unit volumes, cost inflation (raw material, tariff and
freight costs) in the North America region, unfavorable foreign currency and
product warranty expense related to EMEA-produced washers. The consolidated
gross margin percentage for 2018 decreased to 16.8% compared to 16.9% in 2017,
primarily driven by unfavorable impacts from raw material inflation across all
regions and cost inflation (raw material, tariff and freight costs) in the North
America region, lower unit volumes in the EMEA region, partially offset by the
favorable impact of product price/mix and restructuring benefits.
Our operating segments are based upon geographical region and are defined as
North America , EMEA, Latin America and Asia . These regions also represent our
reportable segments. The chief operating decision maker evaluates performance
based on each segment's earnings (loss) before interest and taxes (EBIT), which
we define as operating profit less interest and sundry (income) expense and
excluding restructuring costs, asset impairment charges and certain other items
that management believes are not indicative of the region's ongoing performance,
if any. See Note 16 to the Consolidated Financial Statements for additional
information.
The following is a discussion of results for each of our operating segments.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)Following are the results for theNorth America region: [[Image Removed: chart-46cfbc4a6cc4558597a.jpg]] [[Image Removed: chart-4196a831c5c85a25845.jpg]] [[Image Removed: chart-bc0b094d24665c6cb7f.jpg]] 2019 compared to 2018 Units sold for 2019 decreased 4.7% compared to 2018. 2018 compared to 2017 Units sold for 2018 decreased 1.6% compared to 2017. 2019 compared to 2018 Net sales for 2019 increased 0.9% compared to 2018 primarily due to the favorable impact of product price/mix, partially offset by unit volume declines. Excluding the impact of foreign currency, net sales increased 1.1% in 2019. 2018 compared to 2017 Net sales for 2018 increased 2.8% compared to 2017 primarily due to the favorable impact of product price/mix, partially offset by unit volume declines. Excluding the impact of foreign currency, net sales increased 2.8% in 2018. 2019 compared to 2018 EBIT margin for 2019 was 12.7% compared to 11.8% for 2018. EBIT increased primarily due to the favorable impact of product price/mix which was partially offset by cost inflation (raw material, tariffs and freight costs). 2018 compared to 2017 EBIT margin for 2018 was 11.8% compared to 11.6% for 2017. EBIT increased primarily due to the favorable impact of product price/mix, partially offset by cost inflation (raw material, tariffs and freight costs). 27
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)EMEA
Following are the results for the EMEA region: [[Image Removed: chart-131eb6e50e5c5cbc959.jpg]] [[Image Removed: chart-e4258f734af75cae9c8.jpg]] [[Image Removed: chart-9b83e4a0f51a53be943.jpg]] 2019 compared to 2018 Units sold for 2019 decreased 0.2% compared to 2018. 2018 compared to 2017 Units sold for 2018 decreased 12.8% compared to 2017. 2019 compared to 2018 Net sales for 2019 decreased 5.3% compared to 2018 primarily due to unfavorable impacts of foreign currency and product/price mix. Excluding the impact of foreign currency, net sales decreased 1.1% in 2019. 2018 compared to 2017 Net sales for 2018 decreased 7.1% compared to 2017, primarily due to unit volume declines, partially offset by the favorable impacts of product price/mix and foreign currency. Excluding the impact of foreign currency, net sales decreased 8.5% in 2018. 2019 compared to 2018
EBIT margin for 2019 was (0.7%) compared to (2.3%) for 2018. EBIT increased primarily due to the favorable impact of cost reduction initiatives.
2018 compared to 2017
EBIT margin for 2018 was (2.3%) compared to (0.4%) for 2017. EBIT decreased
primarily due to the unfavorable productivity from unit volume declines and raw
material inflation, partially offset by the favorable impact of product
price/mix and foreign currency.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Following are the results for the
[[Image Removed: chart-2ead5b916de05216b9c.jpg]]
2019 compared to 2018
Units sold for 2019 increased 2.1% compared to 2018.
2018 compared to 2017
Units sold for 2018 increased 1.7% compared to 2017.
2019 compared to 2018
Net sales for 2019 decreased 12.2% compared to 2018 primarily due to the
divestiture of the Embraco compressor business and the unfavorable impact of
foreign currency, partially offset by unit volume growth. Excluding the impact
of foreign currency and Embraco, net sales increased 9.3% in 2019.
2018 compared to 2017
Net sales for 2018 decreased 8.3% compared to 2017 primarily due to the
unfavorable impacts of foreign currency and product price/mix, partially offset
by unit volume growth. Excluding the impact of foreign currency, net sales
decreased 2.4% in 2018.
2019 compared to 2018
EBIT margin for 2019 was 5.4% compared to 5.8% for 2018. EBIT decreased
primarily due to the divestiture of the Embraco compressor business and the
unfavorable impact of foreign currency, partially offset by favorable product
price/mix.
2018 compared to 2017
EBIT margin for 2018 was 5.8% compared to 6.3% for 2017. EBIT decreased
primarily due to raw material inflation and foreign currency impacts, partially
offset by the favorable impact of product price/mix. The prior period was
positively impacted by the sale and monetization of certain tax credits.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)Following are the results of theAsia region: [[Image Removed: chart-5f437fbbd1125be4815.jpg]] [[Image Removed: chart-d90507d42fb6562b9d5.jpg]] [[Image Removed: chart-a3288e53b4c25a939ec.jpg]] 2019 compared to 2018 Units sold for 2019 increased 0.5% compared to 2018. 2018 compared to 2017 Units sold for 2018 decreased 0.7% compared to 2017. 2019 compared to 2018 Net sales for 2019 decreased 4.5% compared to 2018 primarily due to the unfavorable impacts of foreign currency and product price/mix, partially offset by unit volume growth. Excluding the impact of foreign currency, net sales decreased 1.5% in 2019. 2018 compared to 2017 Net sales for 2018 increased 3.2% compared to 2017 primarily due to the favorable impacts of product price/mix, partially offset by the unfavorable impacts of foreign currency and unit volume declines. Excluding the impact of foreign currency, net sales increased 4.5% in 2018. 2019 compared to 2018 EBIT margin for 2019 was 2.2% compared to 5.2% for 2018. EBIT decreased primarily due to the unfavorable impacts of product price/mix and brand investments inChina , partially offset by the favorable impacts of unit volume growth and cost productivity inIndia . 2018 compared to 2017 EBIT margin for 2018 was 5.2% compared to 3.5% for 2017. EBIT increased primarily due to the favorable impacts of product price/mix and cost productivity, partially offset by raw material inflation and foreign currency impacts. The gross margin in 2017 also includes an adjustment related to trade promotion accruals in prior periods. 30
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Selling, General and Administrative
The following table summarizes selling, general and administrative expenses as a
percentage of sales by operating segment:
December 31,
As a % As a % As a %
Millions of dollars 2019 of Net Sales 2018 of Net Sales 2017 of Net Sales
North America $ 826 7.2 % $ 787 6.9 % $ 751 6.8 %
EMEA 497 11.6 564 12.4 557 11.4
Latin America 306 9.6 369 10.2 356 9.0
Asia 253 16.7 244 15.4 258 16.8
Corporate/other 260 - 225 - 190 -
Consolidated $ 2,142 10.5 % $ 2,189 10.4 % $ 2,112 9.9 %
Consolidated selling, general and administrative expenses as a percent of
consolidated net sales in 2019 is comparable to 2018. Consolidated selling,
general and administrative expenses as a percent of consolidated net sales
in 2018 increased compared to 2017 due to expenses related to the bad debt
expense from a Brazilian retailer, expenses related to the sale of the Embraco
compressor business and the negative impact of unit volume declines.
Restructuring
We incurred restructuring charges of $188 million , $247 million and $275 million
for the years ended December 31, 2019 , 2018 and 2017, respectively. For the full
year 2020, we expect to incur up to $100 million of restructuring charges,
driven by previously announced fixed cost reduction actions in the EMEA region.
See Note 14 to the Consolidated Financial Statements for additional information.
Impairment of Goodwill and Other Intangibles
We recorded an impairment charge of
See Note 6 and Note 11 to the Consolidated Financial Statements and the Critical Accounting Policies and Estimates section of this Management's Discussion and Analysis for additional information. (Gain) Loss on Sale and Disposal of Businesses We recorded a pre-tax gain of$511 million on the sale of the Embraco compressor business for the year endedDecember 31, 2019 . We recorded a loss of$74 million for the year endedDecember 31, 2019 related to charges on the sale of theSouth Africa business ($63 million ) and costs associated with the exit of theTurkey domestic sales operations ($11 million ). See Note 17 to the Consolidated Financial Statements for additional information. Interest and Sundry (Income) Expense Interest and sundry (income) expenses were$(168) million ,$108 million and$87 million for the years endedDecember 31, 2019 , 2018 and 2017, respectively. Interest and sundry income in 2019 primarily includes the effect ofBrazil indirect tax credits recorded of$180 million , which reflects$196 million of indirect tax credits, net of related fees, partially offset by a trade customer insolvency claim settlement of €52.75 million (approximately$59 million as ofDecember 31, 2019 ) and foreign currency. Interest and sundry expense increased$21 million in 2018 compared to 2017, primarily due to theFrench Competition Authority (FCA) settlement agreement, partially offset byLatin America tax credits and a favorable impact from foreign currency. 31
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
See Note 8 to the Consolidated Financial Statements for additional information.
Interest Expense
Interest expense was $187 million , $192 million and $162 million for the years
ended December 31, 2019 , 2018 and 2017, respectively. Interest expense in 2019
was comparable to 2018. During 2018, interest expense increased by $30 million
compared to 2017. This was primarily due to higher average debt and notes
payable balances and higher average interest rates.
Income Taxes
Income tax expense was $354 million , $138 million and $550 million for the years
ended December 31, 2019 , 2018 and 2017, respectively. The increase in tax
expense in 2019 compared to 2018 is primarily due to higher earnings before tax,
reduced foreign tax credits and the sale of Embraco, partially offset by net
reductions in valuation allowances, and impacts from a statutory legal entity
merger. As part of ongoing efforts to reduce costs and simplify the Company's
legal entity structure, the Company has completed a statutory legal entity
merger within our EMEA business. The completion of the merger created a
tax-deductible loss which was recognized in the fourth quarter of 2019, and
resulted in a $147 million tax benefit.
The decrease in tax expense in 2018 compared to 2017 is primarily due to lower
level of earnings, the reduction in statutory U.S. tax rate from 35% to 21%,
impact of non-deductible goodwill impairments and government payment accruals,
valuation allowances and tax planning actions.
See Note 15 to the Consolidated Financial Statements for additional information.
FORWARD-LOOKING PERSPECTIVE
Earnings per diluted share presented below are net of tax, while each adjustment
is presented on a pre-tax basis. The aggregate income tax impact of the taxable
components of each adjustment is presented in the income tax impact line item at
our anticipated 2020 full-year tax rate between 20% and 25%. We currently
estimate earnings per diluted share and industry demand for 2020 to be within
the following ranges:
2020
Current Outlook
Estimated earnings per diluted share, for the year ending
December 31, 2020 $14.80 - $15.80
Including:
Restructuring Expense $(1.56)
Income Tax Impact $0.36
Industry demand
North America (1)% - 1%
EMEA 1% - 2%
Latin America 3% - 4%
Asia (1)% - 1%
For the full-year 2020, we expect to generate cash from operating activities of
$1.3 billion to $1.4 billion and free cash flow of approximately $800 million to
$900 million , including restructuring cash outlays of up to $200 million and,
with respect to free cash flow, capital expenditures of approximately $550
million .
The table below reconciles projected 2020 cash provided by operating activities
determined in accordance with GAAP to free cash flow, a non-GAAP measure.
Management believes that free cash flow provides stockholders with a relevant
measure of liquidity and a useful basis for assessing Whirlpool 's ability to
fund its activities and obligations. There are limitations to using non-GAAP
financial measures, including the difficulty associated with comparing companies
that use similarly named non-GAAP measures whose calculations may differ from
our calculations. For 2020 we define free cash flow as cash provided by
operating activities less capital expenditures and including proceeds from the
sale of assets/businesses. For additional information regarding non-GAAP
financial measures, see the Non-GAAP Financial Measures section of Management's
Discussion and Analysis.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
2020
Millions of dollars Current Outlook
Cash provided by operating activities(1)$ 1,350 -$ 1,450 Capital expenditures and proceeds from sale of assets/businesses (550) Free cash flow$ 800 -$ 900 (1) Financial guidance on a GAAP basis for cash provided by (used in) financing activities and cash provided by (used in) investing activities has not been provided because in order to prepare any such estimate or projection, the Company would need to rely on market factors and certain other conditions and assumptions that are outside of its control. The projections above are based on many estimates and are inherently subject to change based on future decisions made by management and the Board of Directors ofWhirlpool , and significant economic, competitive and other uncertainties and contingencies. NON-GAAP FINANCIAL MEASURES We supplement the reporting of our financial information determined underU.S. generally accepted accounting principles (GAAP) with certain non-GAAP financial measures, some of which we refer to as "ongoing" measures, including: • Earnings before interest and taxes (EBIT) • EBIT margin • Ongoing EBIT • Ongoing EBIT margin • Sales excluding currency • Ongoing net sales • Organic net sales • Free cash flow Non-GAAP measures exclude items that may not be indicative of, or are unrelated to, results from our ongoing operations and provide a better baseline for analyzing trends in our underlying businesses. EBIT margin is calculated by dividing EBIT by net sales. Ongoing EBIT margin is calculated by dividing ongoing EBIT by net sales for 2019 and 2018 and ongoing net sales for 2017. Ongoing net sales for 2017 excludes$32 million primarily related to an adjustment for trade promotion accruals in prior periods. Sales excluding foreign currency is calculated by translating the current period net sales, in functional currency, toU.S. dollars using the prior-year period's exchange rate compared to the prior-year period net sales. Organic net sales is calculated by excluding divestitures and foreign currency. Management believes that organic net sales and sales excluding foreign currency provides stockholders with a clearer basis to assess our results over time, excluding the impact of exchange rate fluctuations. We also disclose segment EBIT, which we define as operating profit less interest and sundry (income) expense and excluding restructuring costs, asset impairment charges and certain other items, if any, that management believes are not indicative of the region's ongoing performance, as the financial metric used by the Company's Chief Operating Decision Maker to evaluate performance and allocate resources in accordance with ASC 280, Segment Reporting. Management believes that free cash flow provides stockholders with a relevant measure of liquidity and a useful basis for assessingWhirlpool 's ability to fund its activities and obligations. The Company provides free cash flow related metrics, such as free cash flow as a percentage of net sales, as long-term management goals, not an element of its annual financial guidance, and as such does not provide a reconciliation of free cash flow to cash provided by (used in) operating activities, the most directly comparable GAAP measure, for these long-term goal metrics. Any such reconciliation would rely on market factors and certain other conditions and assumptions that are outside of the Company's control.Whirlpool does not provide a non-GAAP reconciliation for its other forward-looking long-term value creation and other goals, such as organic net sales, EBIT, and gross debt/EBITDA, as such reconciliation would rely on market factors and certain other conditions and assumptions that are outside of the company's control. We believe that these non-GAAP measures provide meaningful information to assist investors and stockholders in understanding our financial results and assessing our prospects for future performance, and reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP financial measures, provide a more complete understanding of our business. Because non-GAAP financial measures are not standardized, it may not be possible 33
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
to compare these financial measures with other companies' non-GAAP financial
measures having the same or similar names. These non-GAAP financial measures
should not be considered in isolation or as a substitute for reported net
earnings (loss) available to Whirlpool , net sales, net earnings as a percentage
of net sales and cash provided by (used in) operating activities, the most
directly comparable GAAP financial measures. We strongly encourage investors and
stockholders to review our financial statements and publicly-filed reports in
their entirety and not to rely on any single financial measure.
Please refer to a reconciliation of these non-GAAP financial measures to the
most directly comparable GAAP financial measures below.
Total Whirlpool Organic Net Sales Reconciliation: Twelve Months Ended December 31,
in millions 2019 2018 Change
Net sales $ 20,419 $ 21,037 (2.9 )%
Less: Embraco net sales (635 ) (1,135 )
Add-Back: currency 430 -
Organic net sales $ 20,214 $ 19,902 1.6 %
Latin America Organic Net Sales Reconciliation: Twelve Months Ended December 31,
in millions 2019 2018 Change
Net sales $ 3,177 $ 3,618 (12.2 )%
Less: Embraco net sales (635 ) (1,135 )
Add-Back: currency 171 -
Organic net sales $ 2,713 $ 2,483 9.3 %
Twelve Months Ended December 31,
Ongoing Earnings Before Interest & Taxes (EBIT)
Reconciliation: 2019 2018 2017
in millions Net earnings (loss) available to Whirlpool (1)$ 1,184 $ (183 ) $ 350 Net earnings (loss) available to noncontrolling interests 14 24 (13 ) Income tax expense 354 138 550 Interest expense 187 192 162 Earnings before interest & taxes$ 1,739 $ 171 $ 1,049 Restructuring expense 188 247 275 Brazil indirect tax credit (180 ) - - Product warranty and liability expense 131 - - (Gain) loss on sale and disposal of businesses (437 ) - - Sale leaseback, real estate and receivable (86 ) - -
adjustments
Trade customer insolvency claim settlement 59 - - Impairment of goodwill and intangibles - 747 - France antitrust settlement - 103 - Trade customer insolvency - 30 - Divestiture related transition costs - 21 - Out-of-period adjustment - - 40 Ongoing EBIT$ 1,414 $ 1,319 $ 1,364 (1) Net earnings margin is approximately 5.8%, (0.9)% and 1.6% for the twelve months endedDecember 31, 2019 , 2018 and 2017, respectively, and is calculated by dividing net earnings (loss) available toWhirlpool by consolidated net sales for the twelve months endedDecember 31, 2019 , 2018 and 2017 of$20.4 billion ,$21.0 billion and$21.3 billion , respectively. 34
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Free Cash Flow (FCF) Reconciliation: Twelve Months Ended December 31,
in millions 2019 2018 2017
Cash provided by operating activities$ 1,230 $ 1,229 $ 1,264 Capital expenditures (532 ) (590 ) (684 ) Proceeds from sale of assets and businesses (3) 1,174 160 61 Change in restricted cash (2) 40 54 66 Repayment of term loan (3) (1,000 ) - - Free cash flow$ 912 $ 853 $ 707
Cash provided by (used in) investing activities
(2) See Note 4 to the Consolidated Financial Statements for additional information (3) Proceeds from the sale of assets and business for the twelve months endedDecember 31, 2019 include$1,011 million of net cash proceeds received to date for the sale of the Embraco compressor business;$1,000 million of these proceeds were used to repay an outstanding term loan inAugust 2019 . FINANCIAL CONDITION AND LIQUIDITY Our objective is to finance our business through operating cash flow and the appropriate mix of long-term and short-term debt. By diversifying the maturity structure, we avoid concentrations of debt, reducing liquidity risk. We have varying needs for short-term working capital financing as a result of the nature of our business. We regularly review our capital structure and liquidity priorities, which include funding the business through capital and engineering spending to support innovation and productivity initiatives, funding our pension plan and term debt liabilities, providing return to shareholders and potential acquisitions. Our short term potential uses of liquidity include funding our ongoing capital spending, restructuring activities, and returns to shareholders. We also have$559 million of term debt maturing in the next twelve months, and are currently evaluating our options in connection with this maturing debt, which may include repayment through refinancing, free cash flow generation, or cash on hand. The Company had cash and cash equivalents of approximately$2.0 billion atDecember 31, 2019 , of which the significant majority was held by subsidiaries in foreign countries. Our cash and cash equivalents are temporarily elevated as ofDecember 31, 2019 from commercial paper outstanding of$274 million that was subsequently repaid after year-end. For each of its foreign subsidiaries, the Company makes an assertion regarding the amount of earnings intended for permanent reinvestment, with the balance available to be repatriated tothe United States . The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operational activities and expected future foreign investments. Our intent is to permanently reinvest these funds outside ofthe United States and our current plans do not demonstrate a need to repatriate the cash to fund ourU.S. operations. However, if these funds were repatriated, we would be required to accrue and pay applicableUnited States taxes (if any) and withholding taxes payable to various countries. It is not practical to estimate the amount of the deferred tax liability associated with the repatriation of cash due to the complexity of its hypothetical calculation. AtDecember 31, 2019 , we had cash or cash equivalents greater than 1% of our consolidated assets inChina ,Brazil ,the United States andIndia , which represented 2.5%, 2.0%, 1.6% and 1.1%, respectively. In addition, we did not have any third-party accounts receivable greater than 1% of our consolidated assets in any single country outside ofthe United States . We continue to monitor general financial instability and uncertainty globally. Notes payable consists of short-term borrowings payable to banks and commercial paper, which are generally used to fund working capital requirements. AtDecember 31, 2019 , we had$294 million of notes payable outstanding which primarily included$274 million of commercial paper. See Note 7 to the Consolidated Financial Statements for additional information. We monitor the credit ratings and market indicators of credit risk of our lending, depository, derivative counterparty banks and customers regularly, and take certain action to manage credit risk. We diversify our deposits and investments in short-term cash equivalents to limit the concentration of exposure by counterparty. 35
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
In June 2018 , Whirlpool of India Limited (Whirlpool India), a majority-owned
subsidiary of Whirlpool Corporation , acquired a 49% equity interest in Elica PB
India for $22 million . Whirlpool India has an option to acquire the remaining
equity interest in the future for fair value, and the non-Whirlpool India
shareholders of Elica PB India received an option to sell their remaining equity
interest to Whirlpool India in the future for fair value, which could be
material to the financial statements depending on the performance of the
venture. We account for our minority interest under the equity method of
accounting.
We continue to review customer conditions globally. At December 31, 2019 , we had
272 million Brazilian reais (approximately $68 million at December 31, 2019 ) in
short and long-term receivables due to us from Maquina de Vendas S.A. , a trade
customer in Brazil . In 2018, as part of their extrajudicial recovery plan, we
agreed to receive payment of our outstanding receivable, plus interest, over
eight years under a tiered payment schedule. At December 31, 2019 , we have 129
million Brazilian reais (approximately $32 million at December 31, 2019 ) of
insurance against this credit risk through policies purchased from high-quality
underwriters.
In the past, when faced with a potential volume reduction from any one
particular segment of our trade distribution network, we generally have been
able to offset such declines through increased sales throughout our broad
distribution network.
For additional information on transfers and servicing of financial assets,
accounts payable outsourcing and guarantees, see Note 1 and Note 8 to the
Consolidated Financial Statements.
Embraco Sale Transaction
On April 24, 2018 , we and certain of our subsidiaries entered into a purchase
agreement with Nidec Corporation, a leading manufacturer of electric motors
incorporated under the laws of Japan , to sell our Embraco business unit (the
"Transaction").
On June 26, 2019 , Whirlpool and Nidec received the European Commission's final
approval of the Transaction, and the parties closed the Transaction on July 1,
2019 . At closing, pursuant to the purchase agreement and a subsequent agreement
memorializing the purchase price adjustment, the Company received $1.1 billion
inclusive of anticipated cash on hand at the time of closing, with final
purchase price amounts subject to working capital and other customary
post-closing adjustments. Whirlpool has agreed to retain certain liabilities
relating to tax, environmental, labor and products following closing of the
Transaction.
On August 9, 2019 , the Company repaid $1.0 billion pursuant to the Company's
April 23, 2018 Term Loan Agreement by and among the Company, Citibank, N.A ., as
Administrative Agent, JPMorgan Chase Bank, N.A . as Syndication Agent, and
certain other financial institutions, representing full repayment of amounts
borrowed under the term loan. As previously disclosed, the Company agreed to
repay this outstanding term loan amount with the net cash proceeds received from
the sale of Embraco.
For additional information on the Embraco sale transaction, see Note 17 to the
Consolidated Financial Statements.
Share Repurchase Program
For additional information about our share repurchase program, see Note 12 to
the Consolidated Financial Statements.
Sources and Uses of Cash
We met our cash needs during 2019 through cash flows from operations, cash and
cash equivalents, and financing arrangements. Our cash, cash equivalents and
restricted cash at December 31, 2019 increased $414 million compared to the same
period in 2018. Our cash and cash equivalents are temporarily elevated at
December 31, 2019 from commercial paper outstanding of $274 million that was
subsequently repaid after year-end.
The following table summarizes the net increase (decrease) in cash, cash
equivalents and restricted cash for the periods presented. Significant drivers
of changes in our cash and cash equivalents balance during 2019 are discussed
below:
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)Cash Flow Summary Millions of dollars 2019 2018 2017 Cash provided by (used in): Operating activities$ 1,230 $ 1,229 $ 1,264 Investing activities 636 (399 ) (721 ) Financing activities (1,424 ) (518 ) (553 ) Effect of exchange rate changes (28 ) (67 ) 63 Net increase in cash, cash equivalents and restricted cash$ 414 $ 245
Cash Flows from Operating Activities Cash provided by operating activities in 2019 was comparable to 2018. The impact of working capital primarily includes inventory reduction efforts, credit management activities and the divestiture of the Embraco compressor business. Net earnings includes the non-cash impacts from the gain on sale and disposal of businesses. The decrease in cash provided by operating activities during 2018 primarily reflects$350 million of discretionary pension funding, partially offset by the working capital impact from inventory reduction efforts, lower volumes and credit management activities. Net loss includes the non-cash impacts from impairment of goodwill and other intangibles. Cash provided by operating activities in 2017 reflects effective credit management and working capital, despite lower cash earnings. The timing of cash flows from operations varies significantly throughout the year primarily due to changes in production levels, sales patterns, promotional programs, funding requirements, credit management, as well as receivable and payment terms. Depending on the timing of cash flows, the location of cash balances, as well as the liquidity requirements of each country, external sources of funding are used to support working capital requirements. Cash Flows from Investing Activities The increase in cash used in investing activities during 2019 primarily reflects proceeds from the sale of the Embraco compressor business (approximately$1 billion ) along with proceeds from a real estate sale-leaseback transaction (approximately$140 million ) and a decrease in capital expenditures (approximately$60 million ) The decrease in cash used in investing activities during 2018 primarily reflects proceeds from a real estate sale-leaseback transaction (approximately$130 million ), a decrease in capital expenditures (approximately$95 million ), and the proceeds related to held-to-maturity securities (approximately$60 million ). The increase in cash used in investing activities in 2017 primarily reflects the net impact of purchases (approximately$170 million ) and proceeds (approximately$110 million ) related to held-to-maturity securities and an increase in capital expenditures (approximately$25 million ). InJune 2016 , Whirlpool China Co., Ltd. ("Whirlpool China"), our majority-owned indirect subsidiary, entered into an agreement to return land use rights for land now occupied by two Whirlpool China plants inHefei, China to a division of theHefei municipal government. The aggregate price for the return of land use rights was approximatelyRMB 687 million (approximately$103 million as ofJune 27, 2016 ). Whirlpool China receivedRMB 127 million (approximately$20 million ) in 2018 andRMB 280 million (approximately$42 million ) in 2017. The related cash flow impact from these transactions is included in investing activities in each respective year. Cash Flows from Financing Activities The increase in cash used in financing activities during 2019 primarily reflects higher repayments of long-term debt (increase of approximately$550 million ), net effect of changes in short-term debt (increase of approximately$1.4 billion ), partially offset by lower share repurchase activity (decrease of approximately$1 billion ). Short-term debt reflects the activity on the$1 billion term loan that was borrowed in 2018 and repaid in 2019, offset by changes in commercial paper for funding normal working capital requirements. 37
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
The decrease in cash used in financing activities during 2018 primarily reflects
higher proceeds from borrowings of short-term debt (increase of approximately
$300 million ) and lower repayments of long-term debt (decrease of approximately
$175 million ), partially offset by higher share repurchase activity (increase of
approximately $400 million ). We also acquired the remaining minority interest in
a subsidiary.
The increase in cash used in financing activities during 2017 primarily reflects
higher share repurchase activity (increase of approximately $225 million ).
Dividends paid in financing activities approximated $300 million during 2019,
2018 and 2017.
Financing Arrangements
The Company had total committed credit facilities of approximately $3.8 billion
at December 31, 2019 . The facilities are geographically diverse and reflect the
Company's global operations. The Company believes these facilities are
sufficient to support its global operations. We had no borrowings outstanding
under the committed credit facilities at December 31, 2019 and 2018,
respectively.
See Note 7 to the Consolidated Financial Statements for additional information.
Dividends
In April 2019 , our Board of Directors approved a 4.3% increase in our quarterly
dividend on our common stock to $1.20 per share from $1.15 per share.
CONTRACTUAL OBLIGATIONS AND FORWARD-LOOKING CASH REQUIREMENTS
The following table summarizes our expected cash outflows resulting from
financial contracts and commitments:
Payments due by period
Millions of dollars Total 2020 2021 & 2022 2023 & 2024 Thereafter Long-term debt obligations(1)$ 6,172 $ 706 $ 856 $ 753$ 3,857 Operating lease obligations(2) 1,154 203 324 252 375 Purchase obligations(3) 672 205 290 120 57United States and foreign pension plans(4) 18 18 - - - Other postretirement benefits(5) 271 33 65 58 115 Legal settlements(6) 65 65 - - - Total(7)$ 8,352 $ 1,230 $ 1,535 $ 1,183 $ 4,404
(1) Principal and interest payments related to long-term debt are included in
the table above. See Note 7 to the Consolidated Financial Statements for
additional information.
(2) Operating lease obligations includes the impact of sale leaseback
transactions. See Note 1 to the Consolidated Financial Statements for
additional information.
(3) Purchase obligations include our "take-or-pay" contracts with materials
vendors and minimum payment obligations to other suppliers.
(4) Represents the minimum contributions required for foreign and domestic
pension plans based on current interest rates, asset return assumptions,
legislative requirements and other actuarial assumptions at
2019. See Note 9 to the Consolidated Financial Statements for additional
information.
(5) Represents our portion of expected benefit payments under our retiree
healthcare plans.
(6) Legal settlements includes €52.75 million (approximately
December 31, 2019 ) related to a trade customer insolvency claim settlement. See Note 8 to the Consolidated Financial Statements for additional information. (7) This table does not include credit facility, short-term borrowings to
banks and commercial paper borrowings. See Note 7 to the Consolidated
Financial Statements for additional information. This table does not
include future anticipated income tax settlements. See Note 15 to the
Consolidated Financial Statements for additional information.
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we enter into agreements with financial
institutions to issue bank guarantees, letters of credit and surety bonds. These
agreements are primarily associated with unresolved tax matters in Brazil , as is
customary under local regulations, and other governmental obligations and debt
agreements. At December 31, 2019 and 2018, we had approximately $333 million and
$355 million outstanding under these agreements, respectively.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
For additional information about our off-balance sheet arrangements, see Note 1
and Note 8 to the Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements, in conformity with GAAP, requires
management to make certain estimates and assumptions. We periodically evaluate
these estimates and assumptions, which are based on historical experience,
changes in the business environment and other factors that management believes
to be reasonable under the circumstances. Actual results may differ materially
from these estimates.
Pension and Other Postretirement Benefits
Accounting for pensions and other postretirement benefits involves estimating
the costs of future benefits and attributing the cost over the employee's
expected period of employment. The determination of our obligation and expense
for these costs requires the use of certain assumptions. Those key assumptions
include the discount rate, expected long-term rate of return on plan assets,
life expectancy, and health care cost trend rates. These assumptions are subject
to change based on interest rates on high quality bonds, stock and bond markets
and medical cost inflation, respectively. Actual results that differ from our
assumptions are accumulated and amortized over future periods and therefore,
generally affect our recognized expense and accrued liability in such future
periods. While we believe that our assumptions are appropriate given current
economic conditions and actual experience, significant differences in results or
significant changes in our assumptions may materially affect our pension and
other postretirement benefit obligations and related future expense.
Our pension and other postretirement benefit obligations at December 31, 2019
and preliminary retirement benefit costs for 2020 were prepared using the
assumptions that were determined as of December 31, 2019 . The following table
summarizes the sensitivity of our December 31, 2019 retirement obligations and
2020 retirement benefit costs of our United States plans to changes in the key
assumptions used to determine those results:
Estimated increase (decrease) in
Percentage PBO/APBO(1)
Millions of dollars Change 2020 Expense for 2019
United States Pension Plans
Discount rate +/-50bps $ 1 /(1) $ (161) /177
Expected long-term rate of return on
plan assets +/-50bps (13)/13 -
United States Other Postretirement Benefit Plan Discount rate +/-50bps 1/(1) (13)/14 Health care cost trend rate +/-100bps - - (1) Projected benefit obligation (PBO) for pension plans and accumulated
postretirement benefit obligation (APBO) for other postretirement benefit
plans.
These sensitivities may not be appropriate to use for other years' financial
results. Furthermore, the impact of assumption changes outside of the ranges
shown above may not be approximated by using the above results. For additional
information about our pension and other postretirement benefit obligations, see
Note 9 to the Consolidated Financial Statements.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Income Taxes
We estimate our income taxes in each of the taxing jurisdictions in which we
operate. This involves estimating actual current tax expense together with
assessing any temporary differences resulting from the different treatment of
certain items, such as the timing for recognizing expenses, for tax and
accounting purposes. These differences may result in deferred tax assets or
liabilities, which are included in our Consolidated Balance Sheets. We are
required to assess the likelihood that deferred tax assets, which include net
operating loss carryforwards, general business credits and deductible temporary
differences, will be realizable in future years. Realization of our net
operating loss and general business credit deferred tax assets is supported by
specific tax planning strategies and, where possible, considers projections of
future profitability. If recovery is not more likely than not, we provide a
valuation allowance based on estimates of future taxable income in the various
taxing jurisdictions, for the amount of deferred taxes that are ultimately
realizable. If future taxable income is lower than expected or if tax planning
strategies are not available as anticipated, we may record additional valuation
allowances through income tax expense in the period such determination is made.
Likewise, if we determine that we are able to realize our deferred tax assets in
the future in excess of net recorded amounts, an adjustment to the deferred tax
asset will benefit income tax expense in the period such determination is made.
At December 31, 2019 and 2018, we had total deferred tax assets of $3.3 billion
and $2.9 billion , respectively, net of valuation allowances of $192 million and
$348 million , respectively. During 2019, the Company used proceeds from a bond
offering to recapitalize various entities in EMEA which resulted in a reduction
in the valuation allowance. In addition, the Company has established tax
planning strategies and transfer pricing policies to provide sufficient future
taxable income to realize these deferred tax assets. Our income tax expense has
fluctuated considerably over the last five years. The tax expense has been
influenced primarily by U.S. energy tax credits, foreign tax credits, audit
settlements and adjustments, tax planning strategies, enacted legislation, and
dispersion of global income. Future changes in the effective tax rate will be
subject to several factors, including business profitability, tax planning
strategies, and enacted tax laws.
In addition, we operate within multiple taxing jurisdictions and are subject to
audit in these jurisdictions. These audits can involve complex issues, which may
require an extended period of time to resolve. For additional information about
income taxes, see Note 1, Note 8 and Note 15 to the Consolidated Financial
Statements.
Warranty Obligations
The estimation of warranty obligations is determined in the same period that
revenue from the sale of the related products is recognized. The warranty
obligation is based on historical experience and represents our best estimate of
expected costs at the time products are sold. Warranty accruals are adjusted for
known or anticipated warranty claims as new information becomes available. New
product launches require a greater use of judgment in developing estimates until
historical experience becomes available. Future events and circumstances could
materially change our estimates and require adjustments to the warranty
obligations. For additional information about warranty obligations, see Note 8
to the Consolidated Financial Statements.
Goodwill and Indefinite-Lived Intangibles
Certain business acquisitions have resulted in the recording of goodwill and
trademark assets which are not amortized. At December 31, 2019 and 2018, we had
goodwill of approximately $2.4 billion and $2.5 billion , respectively. We have
trademark assets with a carrying value of approximately $1.9 billion at December
31, 2019 and 2018, respectively.
We perform our annual impairment assessment for goodwill and other
indefinite-lived intangible assets as of October 1st or more frequently if
events or changes in circumstances indicate that the asset might be impaired. We
consider qualitative factors to assess if it is more likely than not that the
fair value for goodwill or indefinite-lived intangible assets is below the
carrying amount. We may also elect to bypass the qualitative assessment and
perform a quantitative assessment.
In conducting a qualitative assessment, the Company analyzes a variety of events
or factors that may influence the fair value of the reporting unit or
indefinite-lived intangible, including, but not limited to: the results of prior
quantitative assessments performed; changes in the carrying amount of the
reporting unit or indefinite-lived intangible; actual and projected revenue and
EBIT margin; relevant market data for both the Company and its peer companies;
industry outlooks; macroeconomic conditions; liquidity; changes in key
personnel; and the Company's competitive position.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
Significant judgment is used to evaluate the totality of these events and
factors to make the determination of whether it is more likely than not that the
fair value of the reporting unit or indefinite-lived intangible asset is less
than its carrying value.
For our annual impairment assessment as of October 1, 2019 , the Company elected
to bypass the qualitative assessment and perform a quantitative assessment to
evaluate goodwill and certain brand trademarks. The Company elected to perform a
qualitative assessment on the other indefinite-lived intangible assets noting no
events that indicated that the fair value was less than carrying value that
would require a quantitative impairment assessment.
Goodwill Valuations
In performing a quantitative assessment, we estimate each reporting unit's fair
value primarily by using the income approach. The income approach uses each
reporting unit's projection of estimated operating results and cash flows that
are discounted using a market participant discount rate based on a
weighted-average cost of capital. The financial projections reflect management's
best estimate of economic and market conditions over the five-year projected
period including forecasted revenue growth, EBIT margin, tax rate, capital
expenditures, depreciation and amortization and changes in working capital
requirements. Other assumptions include discount rate and terminal growth rate.
For one of our reporting units we use a blended approach that includes a market
capitalization methodology given publicly available information and a discounted
cash flow approach. The estimated fair value of each reporting unit is compared
to their respective carrying values.
Additionally, we validate our estimates of fair value under the income approach
by comparing the values to fair value estimates using a market approach. A
market approach estimates fair value by applying cash flow multiples to the
operating performance of each reporting unit. The multiples are derived from
comparable publicly traded companies with operating and investment
characteristics similar to the reporting units. We also corroborate the fair
value through a market capitalization reconciliation to determine whether the
implied control premium is reasonable based on recent market transactions and
other qualitative considerations.
Based on the results of our annual quantitative assessment performed as of
Based on the quantitative assessment performed for the EMEA reporting unit, the fair value of the reporting unit exceeded its carrying value by 7%. The EMEA reporting unit has goodwill of approximately$300 million atDecember 31, 2019 . In evaluating the EMEA reporting unit, significant weight was provided to the forecasted EBIT margins and the discount rate used in the discounted cash flow model, as we determined that these items have the most significant impact on the fair value of this reporting unit.
• Forecasted EBIT margins are expected to recover as we stabilize volumes,
improve our price/mix and recover market share and benefit from the
recently announced strategic actions to rightsize and refocus the
business. The 5-year average forecasted EBIT margin in the discounted cash
flow model was approximately 4%.
• We used a discount rate of 11.25% based on market participant assumptions.
We performed a sensitivity analysis on our estimated fair value noting that a 100 basis point increase in the discount rate or a 5% reduction in the projected EBIT margins in the forecasted periods would result in an impairment charge of$180 million and$49 million , respectively.
If actual results are not consistent with management's estimates and assumptions, a material impairment charge of goodwill could occur, which could have a material adverse effect on our consolidated financial statements. Indefinite-Lived Intangible Valuations
In performing a quantitative assessment of indefinite-lived intangible assets
other than goodwill, primarily trademarks, we estimate the fair value of these
intangible assets using the relief-from-royalty method which requires
assumptions related to projected revenues from our annual long-range plan;
assumed royalty rates that could be payable if we did
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)not own the trademark; and a market participant discount rate based on a weighted-average cost of capital. If the estimated fair value of the indefinite-lived intangible asset is less than its carrying value, we would recognize an impairment loss.
The fair value of the Indesit and Hotpoint* trademarks exceeded their carrying value of €190 million (approximately$213 million atDecember 31, 2019 ) and €135 million (approximately$151 million atDecember 31, 2019 ) by 16% and 7%, respectively. We expect revenue trends for both these brands to improve as we stabilize volumes, recover market share and benefit from our new product investments in the EMEA region. The fair value of the Maytag trademark exceeded its carrying value of$1,021 million by approximately 6%. We expect revenue trends for this brand to continue to improve as we execute our brand leadership strategy and benefit from our new product investments.
The fair values of all other trademarks exceeded their carrying values by more than 10%.
In performing the quantitative assessment on these assets, significant assumptions used in our relief-from-royalty model included revenue growth rates, assumed royalty rates and the discount rate, which are discussed further below.
Revenue growth rates relate to projected revenues from our financial planning and analysis process and vary from brand to brand. Adverse changes in the operating environment or our inability to grow revenues at the forecasted rates may result in a material impairment charge. We performed a sensitivity analysis on our estimated fair values noting a 10% reduction of forecasted revenues in the Hotpoint* and Maytag trademarks would result in an impairment charge of approximately$3 million and$39 million , respectively, and a 15% reduction of forecasted revenues in the Indesit trademark would result in an impairment charge of approximately$5 million . In determining royalty rates for the valuation of our trademarks, we considered factors that affect the assumed royalty rates that would hypothetically be paid by a market participant for the use of trademarks. The most significant factors in determining the assumed royalty rates include the overall role and importance of the trademarks in the particular industry, the profitability of the products utilizing the trademarks, and the position of the trademarked products in the given product category. Based on this analysis, we determined a royalty rate of 3%, 3.5% and 4% for our Indesit, Hotpoint* and Maytag trademarks, respectively. We performed a sensitivity analysis on our estimated fair values for Indesit, Hotpoint* and Maytag noting a 50 basis point reduction of the royalty rates from each brand would result in an impairment charge of approximately$9 million ,$27 million and$66 million , respectively. In developing discount rates for the valuation of our trademarks, we used a market participant discount rate based on a weighted-average cost of capital, adjusted for higher relative level of risks associated with doing business in other countries, as applicable, as well as the higher relative levels of risks associated with intangible assets. Based on this analysis, we determined the discount rates to be 14.5%, 15% and 9.75% for Indesit, Hotpoint* and Maytag, respectively. We performed a sensitivity analysis on our estimated fair values for Maytag noting a 100 basis point increase in the discount rate would result in an impairment charge of approximately$57 million , and a 250 basis point increase in the discount rate for Hotpoint* and Indesit would result in an impairment charge of approximately$13 million and$7 million , respectively. If actual results are not consistent with management's estimate and assumptions, a material impairment charge of our trademarks could occur, which could have a material adverse effect on our consolidated financial statements.
For additional information about goodwill and indefinite-life intangible valuations, see Note 6 and Note 11 to the Consolidated Financial Statements.
The estimates of future cash flows used in determining the fair value of goodwill and intangible assets involve significant management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions and cost of capital. Inherent in estimating the future cash flows are uncertainties beyond our control, such as changes in capital markets. The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance and economic conditions.
*
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
ISSUED BUT NOT YET EFFECTIVE ACCOUNTING PRONOUNCEMENTS
Additional information regarding recently issued accounting pronouncements, see
Note 1 to the Consolidated Financial Statements.
OTHER MATTERS
For additional information regarding certain of our loss
contingencies/litigation, see Note 8 to the Consolidated Financial Statements.
Grenfell Tower
On June 23, 2017 , London's Metropolitan Police Service released a statement that
it had identified a Hotpoint-branded refrigerator as the initial source of the
Grenfell Tower fire in West London. U.K. authorities are conducting
investigations, including regarding the cause and spread of the fire. The model
in question was manufactured by Indesit Company between 2006 and 2009, prior to
Whirlpool 's acquisition of Indesit in 2014. We are fully cooperating with the
investigating authorities. Whirlpool has been named as a defendant in a product
liability suit related to this matter, which suit is currently pending in
Pennsylvania federal court. As these matters are ongoing, we cannot speculate on
their eventual outcomes or potential impact on our financial statements;
accordingly, we have not recorded any significant charges in 2018 or 2019.
Additional claims may be filed related to this incident.
Antidumping and Safeguard Petition
As previously reported, Whirlpool filed petitions in 2011 and 2015 alleging that
Samsung, LG and Electrolux violated U.S. and international trade laws by dumping
washers into the U.S. Those petitions resulted in orders imposing antidumping
duties on certain washers imported from South Korea , Mexico , and China , and
countervailing duties on certain washers from South Korea . These orders could be
subject to administrative reviews and possible appeals. In March 2019 , the order
covering certain washers from Mexico was extended for an additional five years,
while the order covering certain washers from South Korea was revoked.
Whirlpool also filed a safeguard petition in May 2017 to address our concerns
that Samsung and LG are evading U.S. trade laws by moving production from
countries covered by antidumping orders. A safeguard remedy went into effect in
February 2018 , implementing tariffs on finished washers and certain covered
parts for three years. During the third year of the remedy, beginning February
7, 2020 , the remedy imposes a 16% tariff on the first 1.2 million large
residential washing machines imported into the United States ("under tariff")
and a 40% tariff on such imports in excess of 1.2 million, and also imposes a
40% tariff on washer tub, drum, and cabinet imports in excess of 90,000 units.
In January 2020 , the President modified the safeguard order to allocate the 1.2
million under tariff by quarter during the third year of remedy (300,000 washing
machines per quarter). The President maintains discretion to modify the remedy.
We cannot speculate on the modification's impact, which will depend on Samsung
and LG's U.S. production capabilities and import plans.
U.S. Tariffs and Global Economy
The current domestic and international political environment, including existing
and potential changes to U.S. policies related to global trade and tariffs, have
resulted in uncertainty surrounding the future state of the global economy. The
impact of previously-announced U.S. tariffs was a component of increased raw
material costs during the year ended December 31, 2019 . We expect these and
other tariffs to impact material and freight costs in future quarters, which
could require us to modify our current business practices and could have a
material adverse effect on our financial statements in any particular reporting
period.
Brexit
In 2016, the UK held a referendum, the outcome of which was an expressed public
desire to exit the European Union ("Brexit"), which has resulted in greater
uncertainty related to the free movement of goods, services, people and capital
between the UK and the EU. On January 31, 2020 , the UK officially exited the
European Union and entered into a transition period to negotiate the final terms
of Brexit. Many potential future impacts of Brexit remain unclear and could
adversely impact certain areas of our business, including, but not limited to,
an increase in duties and delays in the delivery of products, and adverse
impacts to our suppliers and financing institutions. In order to mitigate the
risks associated
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (CONTINUED)
with Brexit, we are preparing for potential adverse impacts by collaborating
across Company functions and working with external partners to develop and
revise the necessary contingency plans.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements made by us or on our behalf. Certain statements
contained in this annual report, including those within the forward-looking
perspective section within this Management's Discussion and Analysis, and other
written and oral statements made from time to time by us or on our behalf do not
relate strictly to historical or current facts and may contain forward-looking
statements that reflect our current views with respect to future events and
financial performance. As such, they are considered "forward-looking statements"
which provide current expectations or forecasts of future events. Such
statements can be identified by the use of terminology such as "may," "could,"
"will," "should," "possible," "plan," "predict," "forecast," "potential,"
"anticipate," "estimate," "expect," "project," "intend," "believe," "may
impact," "on track," and similar words or expressions. Our forward-looking
statements generally relate to our growth strategies, financial results, product
development, and sales efforts. These forward-looking statements should be
considered with the understanding that such statements involve a variety of
risks and uncertainties, known and unknown, and may be affected by inaccurate
assumptions. Consequently, no forward-looking statement can be guaranteed and
actual results may vary materially.
This document contains forward-looking statements about Whirlpool Corporation
and its consolidated subsidiaries ("Whirlpool") that speak only as of this date.
Whirlpool disclaims any obligation to update these statements. Forward-looking
statements in this document may include, but are not limited to, statements
regarding expected earnings per share, cash flow, productivity and raw material
prices. Many risks, contingencies and uncertainties could cause actual results
to differ materially from Whirlpool 's forward-looking statements. Among these
factors are: (1) intense competition in the home appliance industry reflecting
the impact of both new and established global competitors, including Asian and
European manufacturers, and the impact of the changing retail environment,
including direct-to-consumer sales; (2) Whirlpool 's ability to maintain or
increase sales to significant trade customers and the ability of these trade
customers to maintain or increase market share; (3) Whirlpool 's ability to
maintain its reputation and brand image; (4) the ability of Whirlpool to achieve
its business plans, productivity improvements, and cost control objectives, and
to leverage its global operating platform, and accelerate the rate of
innovation; (5) Whirlpool 's ability to obtain and protect intellectual property
rights; (6) acquisition and investment-related risks, including risks associated
with our past acquisitions, and risks associated with our increased presence in
emerging markets; (7) risks related to our international operations, including
changes in foreign regulations, regulatory compliance and disruptions arising
from political, legal and economic instability; (8) information technology
system failures, data security breaches, data privacy compliance, network
disruptions, and cybersecurity attacks; (9) product liability and product recall
costs; (10) the ability of suppliers of critical parts, components and
manufacturing equipment to deliver sufficient quantities to Whirlpool in a
timely and cost-effective manner; (11) our ability to attract, develop and
retain executives and other qualified employees; (12) the impact of labor
relations; (13) fluctuations in the cost of key materials (including steel,
resins, copper and aluminum) and components and the ability of Whirlpool to
offset cost increases; (14) Whirlpool 's ability to manage foreign currency
fluctuations; (15) impacts from goodwill impairment and related charges; (16)
triggering events or circumstances impacting the carrying value of our
long-lived assets; (17) inventory and other asset risk; (18) the uncertain
global economy and changes in economic conditions which affect demand for our
products; (19) health care cost trends, regulatory changes and variations
between results and estimates that could increase future funding obligations for
pension and postretirement benefit plans; (20) changes in LIBOR, or replacement
of LIBOR with an alternative reference rate; (21) litigation, tax, and legal
compliance risk and costs, especially if materially different from the amount we
expect to incur or have accrued for, and any disruptions caused by the same;
(22) the effects and costs of governmental investigations or related actions by
third parties; and (23) changes in the legal and regulatory environment
including environmental, health and safety regulations, and taxes and tariffs.
We undertake no obligation to update any forward-looking statement, and
investors are advised to review disclosures in our filings with the SEC . It is
not possible to foresee or identify all factors that could cause actual results
to differ from expected or historic results. Therefore, investors should not
consider the foregoing factors to be an exhaustive statement of all risks,
uncertainties, or factors that could potentially cause actual results to differ
from forward-looking statements.
Additional information concerning these and other factors can be found in "Risk
Factors" in Item 1A of this report.
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